Osborne to save capital projects from cuts

17th October 2010

Chancellor said he would protect key infrastructure projects such as Crossrail and give councils new spending freedoms

The government yesterday began a push to recast Wednesday's huge budget deficit reduction plan, with the chancellor announcing he would be protecting key infrastructure projects and giving councils new spending freedoms.

After a weekend of reports detailing cuts to the budgets of Whitehall departments, Osborne declared he was waging a war on "welfare and waste" in order to eke out more money for healthcare, schools, early-years education and key infrastructure projects in the hope that it will fuel economic growth.

Among schemes due to go ahead, and which the government hopes will shift attention away from dramatic cuts, are:

• London's £16bn Crossrail link, which had been in peril.

• The Mersey Gateway bridge.

• Blt The Thames Gateway bridge.

• Investment of £69m in the diamond synchotron - a particle physics project at Harwell in Oxfordshire.

Meanwhile, the Lib Dems announced they had removed restrictions on how local authorities spend government grants, in what one official called the "most radical decentralisation in recent times". Though councils should still be braced for cutbacks, the office of the chief secretary to the Treasury, Danny Alexander, has pushed for an overhaul in how their funding is allocated. Excluding school, police and fire grants, the government will announce that money will be distributed with far fewer strings attached, amounting, they claim, to £7bn of increased flexibility for councils.

Both partners in the coalition are attempting to manage the week's news after the process entered its final stages. Yesterday saw a meeting of cabinet colleagues on the star chamber at the prime minister's official residence at Chequers to wind up the process.

George Osborne told BBC1's Andrew Marr Show: "We have got to make some tough decisions, but the priority is healthcare, children's education, early years provision and the big infrastructure developments like Crossrail, Mersey Gateway, the synchrotron, broadband. Those things are actually going to get us out of this stronger and able to pay our way in the world."

In an attempt to fend off accusations that the comprehensive spending review (CSR) - which aims to cut spending in inflation-adjusted terms by £83bn over the next four years - is disproportionately harsh on the less fortunate, Osborne is insisting that the banks - widely blamed for causing the crisis - should pay their share of the financial clean-up operation by signing new tax agreements. So far only four of 16 UK banks have agreed to an arrangement under which inform top officials of new tax planning schemes.

Today the shadow chancellor Alan Johnson will set out the opposition's plan for a £7bn "plan for growth" to fund road building and other construction.

Osborne's emphasis on growth came against myriad reports of where the government might cut on Wednesday. There was speculation it will abolish child benefit for 16 to 19-year-olds, paid to those who stay on in education or training.

Ministers agreed an 8% cut in the defence budget only after the prime minister intervened to insist the budget cut was not the full 10%. It was also reported that the Ministry of Justice had had to accept cuts of nearly 30%.

There was support for the government from the private sector with a letter signed by 35 business leaders, including Marks & Spencer chairman Sir Stuart Rose and BT boss Ian Livingston, saying there is "no reason to believe" Osborne's plan to eliminate the structural deficit within four years will undermine the recovery. The 25 also warn that Labour's plan to spread deficit reduction over more than one parliament would leave the UK almost £100bn deeper in debt by 2014/15 and increase the risk of interest-rate hikes.

Meanwhile, sources in Westminster have told the Guardian the NHS will shrink by "a fifth" with a radical overhaul of treatments and sweeping relocation of many services, because rising demand will outstrip the resources available. Although the health budget is ring-fenced, many within the service say cost pressures are rising far faster than taxpayer funding.

In order to save money, it has emerged NHS trusts are already closing surgical wards, no longer making available treatments considered non-life threatening, such as in vitro fertilisation, and denying many basic operations. A source close to the government said: "A fifth of everything the NHS does today will stop."

The NHS Confederation today warns that even with protection of its budget the health service will still be "hard hit" by spending cuts and called for political leaders to be "frank and realistic about the impact on the public".

Nigel Edwards, the confederation's acting chief executive, said: "The public need to go into this with their eyes wide open. The NHS may have some limited protection to its budget, but it still faces a potent cocktail of financial pressures."